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New Mexico Community Capital Refines its Investment Focus

Michael Schafer and Shyla Sheppard

The first double bottom line firm in the state, New Mexico Community Capital (NMCC) has refined its focus. Managing Director Michael Schafer joined the organization just about a year ago. Shyla Sheppard, Fund Associate, has been there since day one. We spoke with them about recent developments.

“I wouldn’t say that the types of investments have necessarily changed, but we’ve added more clarity and specificity,” says Shyla. She explained that while before they were generalists, now NMCC is more focused. “Financial returns matter to our limited partners, in addition to the social returns that our portfolio companies generate.”

Double bottom line investments can garner good returns

Michael says that he was concerned before joining NMCC because he knew that out of 65 or so double bottom line firms in the country, only four were considered successful. Yet he saw the potential. “I think it is socially worthwhile to funnel capital to businesses that deserve it, and do social good while helping the local economy and creating jobs,” says Michael.

One of his first tasks was to clarify NMCC’s strategy. He had to figure out how to define the fund’s mission in a way that people would understand. NMCC’s mission became investing in high growth companies focused on creating products to meet basic human needs. “Basic human needs” meant opportunities that addressed food, water, shelter, energy, the environment, health and security.

“By addressing the needs of humanity, we’re dealing with markets that are huge, such as water with portfolio company, MIOX,” Michael says. “Our premise is that by dealing with large markets and good investors, we should generate the same returns any other fund would.”

Location matters

A more subtle change is NMCC’s geographic focus. The group only invests in New Mexico, expanding on their past concentration on the rural parts of the state. “We still look for opportunities outside the Rio Grande corridor, but with most of the economy concentrated in Albuquerque and Santa Fe, we would be remiss to not look at those opportunities,” Shyla points out.

With new offices in Albuquerque, NMCC now has their limited partners and CEOs from portfolio companies dropping in frequently. Even people from outside the state find the location, at the Science & Technology Park @ UNM near the airport, much more convenient than NMCC’s former headquarters in Bernalillo.

The new location also makes sense considering two out of their last three investments, IntelliCyt and Protohit, are based on UNM technologies. Their third recent investment, in Aspen Avionics, was made along with local firms Epic Ventures and vSpring Capital. Being asked to join the investor syndicate made NMCC feel it was really becoming more established as part of the local VC community.

New Mexico’s unique promise

With 25 years of multi-geography venture capital experience, Michael understands what is unique about New Mexico. Water is one area where he thinks New Mexico has an edge. “Water issues will be resolved in areas where water is already a cherished resource, such as the southwestern United States,” he says. Agriculture is another area where the state can excel. New Mexico has a long tradition of understanding food production with diminished resources, that is farming with less water and less than optimal soil.

From mid-2008 to late 2009, NMCC wasn’t an active investor. However, the organization has been an aggressive investor for the past year and the word has gotten out to entrepreneurs and investors. “We want to be a part of the industries that will be the strongest in New Mexico over the next ten years,” Michael says. He adds with a laugh that NMCC will look at almost anything, with the exception of the movie industry. “We just don’t understand the accounting there.”

There has also been some confusion about the organization, as they have two parts: a for-profit VC fund and a nonprofit. “By having a sister nonprofit, we can provide the two things most essential to success: knowledge and capital,” Michael says.

Tribal opportunities

NMCC is also working on partnerships with tribes in New Mexico to develop business opportunities. “We’ve been building relationships over the last five years, but we’re moving forward more quickly now that we have funding,” Shyla says. NMCC received a $650,000 grant from the U.S. Department of the Treasury’s Community Development Financial Institutions Fund to pursue pilot investments in Indian country.

“There are 22 federally recognized tribes here in New Mexico,” Shlya says. “They have needs for business development and have certain legal and economic advantages.” She adds that NMCC is pursuing equity investment strategies to help the tribes diversify and develop their economies. “The goal,” Shyla says, “is developing opportunities that will further a tribe’s long-term goals, moving the tribe’s priorities in conjunction with their core values, not in conflict with them.”

Michael points out that, as a Stanford graduate (Economics) and Native American raised on a reservation, Shyla is uniquely qualified to take on this role. He also praises Leslie Elgood, the CEO of NMCC, for her vision and recognition of New Mexico’s unique opportunities and how NMCC can help.

The growth of NM’s VC community

Although he’s just been at NMCC for a year now, Michael is no stranger to New Mexico. In 1998, he was the partner at Tullis-Dickerson responsible for opening the firm’s New Mexico office. “The whole New Mexico venture capital industry existed in one corridor of the TVC building,” he recalls. He returned to the state in 2009, believing in NM’s potential. “I’m convinced with missionary zeal that New Mexico is a good place to invest and build companies, based on the science of the labs and universities, and having great managers.”

Years ago, a member of the State Investment Council asked him: “How should we measure progress in NM?” He answered that the best way to determine a region’s chance for success is to watch for the “recycling” of managers. “If they leave the companies that recruited them to NM to stay here and start new ones, that is the real measure of progress,” Michael says. “The financial returns will follow.”